Syngenta: good reasons to refuse the Monsanto offer

14 June 2015 Agriculture, Economy Comments (1)

A deal is a deal, good or bad. For the shareholders of both companies, two groups to which I don’t belong, the proposed merger[1] may well be a bad deal. Neither will it be any good for the employees.

There are three reasons to this negative assessment –financial, operative, and strategic– that don’t point to valuable synergies.

First come short term financial considerations: as soon as the merger would be sealed, competition authorities in Europe, in USA and everywhere else will immediately request that one of the two seeds businesses (Syngenta’s, of course) should be sold to a third party competitor; and it can also be expected that some herbicides from the current Syngenta range would have to be divested in order to save glyphosate. And some other contingencies may be imposed on the new company. This would result in the elimination of at least 21% of the Syngenta sales revenue and of a lower proportion[2] of its operating profit. There are not that many potential buyers (BASF, ChemChina/Adama, FMC, Sumitomo, ?), and it is very doubtful that they would be ready to pay a premium for this difficult to integrate business. The resulting debt level of the merged company will not look very attractive.

Second come operational divergences: since three years Syngenta has made sensible efforts to organize itself as an integrated company. At all levels and functions its seeds and chemicals operations have been bundled together to present a common front to the customers. This is still “work in progress” that requires a lot of attention and dedication. To implement the proposed merger, a classical approach by regions and functions will not be possible. One of the two organisations will need to be totally transformed, with associated costs and inefficiencies, a short term value destruction without sensible upside at later date.

And third, strategic incongruences will need to be overcome. As explained in an earlier post[3], Monsanto evolved in a totally different direction, trimming itself and all its staff to the paradigm of genetics. Also, its way of doing business is characterized by a self-assurance (not to say arrogance) that is not compatible with other, more differentiated, approaches. Here again one of the two management modes will have to go away. And since this will not be a merger of equals, the M way will be imposed to a large work and intelligence force who will reluctantly have to accept this. And as most key managerial positions will be held by such single-minded individuals (cowboys), it is highly likely that they will not be at the level required for managing such a new complexity.

Besides of negative aspects caused by disruption, reputation risk (Monsanto being a kind of hate name in the communication world, while Syngenta’s fame is more balanced), and difficult to harmonize behaviours, no significant positive strategic or operational synergies can be identified. Having erred on the strategic side for now two decades Monsanto needs such merger to regain a lost equilibrium in this business. On its side Syngenta is struggling with the implementation of its own strategy and does not need the kiss of death of such merger proposal.

If Monsanto’s Chairman and CEO wants it he will need to overpay. The only way to make the deal attractive to Syngenta’s shareholder is to significantly sweet up the offered price and to pay a much larger proportion in cash rather than in shares. Then Monsanto’s shareholders will not be happy. And for Syngenta’s employees there will be no joy in it. Key talents can always be retained, at a cost and without guaranteed loyalty. Courageous ones will vote with their feet, others will resign themselves to it, not without some of the usual cowardice that is shown in such instances.

[1]     The Syngenta shareholders have to agree or not to the Monsanto unsolicited offer to sell their shares for 449 Fr a piece. But this is not it: they would receive 45% in cash, or 202.05 Fr, and a certain quantity of Monsanto’s shares to make up for the remaining 55% (at today’s value of 114.20 USD this would correspond to 2.33 shares). The whole deal value amounts 41.7 bn Fr. In addition, Monsanto has now also proposed to pay to Syngenta 2 billion dollars if, once engaged, the deal would not come to fruit (break-up fee). Syngenta’s Board of Directors is not accepting this offer, but did not stop negotiating.

[2]     at Syngenta, seeds are less profitable than crop protection chemicals

[3]     http://blog.mr-int.ch/?p=2332&lang=fr


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1 thought on “Syngenta: good reasons to refuse the Monsanto offer”

  1. Great article – perhaps another perspective which favors Syngenta. Monsanto’s GMO seed focused business has reached its peak with anti-GMO headwinds continuing to influence consumer acceptance even in North America. This will impact MON ability to increase revenue and needs Syngenta’s chemicals business to grow. With the increasing resistance to glyphosate, Syngenta is well positioned to overtake Monsanto in terms of sales and market cap. Hold on Syngenta – you’re in the driver’s seat.

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